Woodside stokes fears of oil leak

Woodside Petroleum
is trying to save $20 million by avoiding plugging gas wells to Western Australia’s standards, sparking warnings from the state government of an environmental disaster.

But Woodside says it has applied federal regulations that are safe and the extra expense would be a waste.

The move comes as regulatory authority of offshore petroleum and gas wells shifts from the states to a federal regulator, allowing the oil and gas company to apply – and receive – permission from the new agency to use a less onerous plugging procedure.

WA Mines and Petroleum Minister
Norman Moore
said the state government directive needed to be followed.

“Failure to require compliance with those directions could put at risk the environmentally sensitive Western Australia coastline and marine ­industries and other resources in the area," Mr Moore said.

“This situation seems to point to a significant shift in regulatory policy, the implications of which need further consideration and comparison with the previous regulatory framework."

The state government’s stance is backed by energy giant Chevron, which has expressed fears its $29 billion Wheatstone liquefied natural gas project would be left exposed unless the stringent plugging procedure is used on the nearby Woodside wells.

Conversely, Woodside has the support of the new federal agency, the National Offshore Petroleum Safety Authority, which believes the state government failed to provide sufficient proof that Woodside needed to re-enter the abandoned wells and insert a shallow cement plug.

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“There is no technical justification provided in the letter or documents to assess the rationale of the directions further," a NOPSA spokeswoman said.

Scrutiny of oil and gas drilling in waters around Australia has been ramped up since the Montara oil spill in the Timor Sea in 2009 and BP’s Deepwater Horizon drill-rig disaster in the Gulf of Mexico in April 2010.

The federal and WA governments have tightened up requirements for drilling and production project approvals and the new safety regulator officially took over from the states on January 1.

The move was strongly opposed by WA, where most of the big projects are located off its coast.

Mr Moore said in December that the new regulator did not have the experience to take on the role.

“Given that Western Australia has 30 years of experience in offshore petroleum regulatory processes, the federal government’s reforms have created a tremendous void in regulatory expertise for the sector," Mr Moore said.

Woodside drilled the Xeres, Kelt and Noblige-2 wells in the Carnarvon Basin in the second and third quarters of last year, targeting gas for the expansion of its $14.9 billion Pluto LNG project.

Costs of dismantling and ­de­commissioning wells rise in line with the amount of work to be carried out, and costs increase in deeper water.

The state government directive is designed to avoid seawater rusting and eroding structures it believes could lead to an oil leak from the wells.

A Woodside spokeswoman said its procedures had been approved by the relevant safety authority.

Woodside has taken its complaint over the WA government’s directive to the Federal Court in Perth, arguing the requirement would cost “in the order of $20 million or more". Yet its legal complaint is based on whether the WA directive was issued correctly, rather than on the merits of using a surface plug.

Woodside noted in legal documents the state government relied partly on “expressions of concern" penned by Chevron without allowing Woodside to respond. (Woodside and Chevron are joint-venture partners in the North West Shelf gas project.)

The issue has arisen at an awkward time for Woodside, which is reliant on state government support to develop the controversial James Price Point gas processing hub.

The state government believes Woodside has reneged on a deal to plug the wells to its standards when it received permission to drill the gas wells. But a person close to the oil and gas company argued that Woodside gave no such pre­commitment.

The conflicting advice of different agencies handed down last year arose after Federal Resources Minister
Martin Ferguson
pushed for the creation of a single national regulator, as opposed to a joint-authority decision-making arrangement with the states.

As at January 1, with the national regulator in sole control, Woodside’s chances of avoiding the $20 million exercise of plugging the wells to WA standards have improved.

A spokesperson for Mr Ferguson said the Woodside dispute was an issue for the national regulator. “These regulations provide the appropriate regulatory framework to ensure good industry practice and protect environmentally sensitive coastline and other marine industries," the spokesperson said.